The UK’s Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) have published joint feedback statement on the state of the country’s digital wallet market. Its findings highlight both the increasing reliance on digital wallets in the UK and concerns over competition, consumer protection, and innovation.
The report follows ongoing scrutiny of Apple and Google’s influence on mobile payments. Last month, the UK’s Competition and Markets Authority (CMA) launched an investigation into whether the two companies hold strategic market status in their mobile ecosystems. This inquiry covers operating systems, app stores, browsers, and digital wallets, assessing the impact on market competition and consumer choice.
Digital wallet usage on the rise
The FCA and PSR’s statement notes a significant increase in digital wallet adoption in recent years. In 2019, 8% of card transactions were conducted through digital wallets, rising to 29% by 2023. Consumer reliance on these services is also growing, with 20% of card users in 2023 making more than half of their transactions via digital wallets, and 10% using them for over 75% of their card payments.
The report identifies several factors contributing to this trend, including enhanced security features, ease of use, and improved financial accessibility. However, stakeholders have also raised concerns regarding competition within the sector, particularly regarding the role of dominant technology companies.
Stakeholders consulted by the FCA and PSR highlighted challenges in the digital wallet landscape, particularly in relation to market access and competition. Key concerns include restrictions that could limit new entrants, the potential for established players to leverage their market power to control mobile payment infrastructure, and the broader impact on innovation in financial services.
Regulators have also taken note of international developments, such as the European Commission’s review of Near Field Communication (NFC) technology access, as a possible reference for regulatory approaches in the UK. The report suggests that ensuring open access to payment technologies on reasonable terms could be a critical factor in fostering a competitive market.
The FCA and PSR have decided not to launch separate regulatory action but have instead submitted their findings to the CMA, aligning with its ongoing investigation into Apple and Google. The CMA’s review, conducted under the Digital Markets, Competition and Consumers (DMCC) Act 2024, will determine whether the two companies’ control over mobile ecosystems affects competition within the digital wallet market. By deferring competition-related concerns to the CMA, the financial regulators have signalled that enforcement action, if necessary, would likely fall within the CMA’s regulatory scope. However, the FCA and PSR have stated that they will continue to engage with policymakers and monitor developments in digital payments.
Beyond competition concerns, the FCA and PSR have outlined broader regulatory priorities in the payments sector. The regulators are working with the Treasury as part of a review of the Payment Services and Electronic Money Regulations, aiming to ensure that the UK’s financial infrastructure keeps pace with digital advancements.
Ongoing initiatives include expanding open banking, improving contactless payment systems, and supporting innovation in financial technology. These efforts are part of a wider strategy to modernise the UK’s payments landscape while addressing potential risks associated with Big Tech’s growing role in financial services.
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